In the postings Necessity of Working Capital and The Current Ratio Matters we looked at the importance of having adequate working capital and a couple of ways of assessing a company’s working positions. In addition to the actual dollar amount of working capital and the current ratio, there is another liquidity measure, the Quick Ratio.

Quick Ratio

The quick ratio analysis is a way to look at liquidity that is a little more stringent in what are considered liquid assets. Unlike the current ratio that includes all current assets in the calculation of the ratio, the quick ratio Read the rest of this entry »

In the posting Necessity of Working Capital we looked at the importance of having adequate working capital. For that purpose we considered how working capital is calculated and how the amount can impact a business for good or bad. Now let’s look at working capital a different way.

No business can continue to operate if they don’t pay their bills. Because of that it is important to keep tabs on your company’s ability to pay bills on time. There are several financial indicators of this ability, among them being the quick ratio, current ratio, and working capital. For now let’s look at the necessity of working capital.

Sometimes financial calculations are not what they at first seem. That is, we may not be able to take them at face value. I previously discussed a little about what financial analysis can do for you in Things Financial Analysis Can Tell You. In that post two things mentioned were the current ratio and the quick ratio. Let’s look at these a little closer. To do this we’ll use Read the rest of this entry »

When is an asset not an asset? Let’s start out with some basics before we get into the meat of this article.

Asset Defined

According to Merriamwebster.com one of the definitions of an asset is an item of value owned or item(s) on a balance sheet showing the book value of property owned. For accounting purposes this is a good working definition. It would include such things as cash, receivables, inventory, land and building, equipment, and pre-paid expenses. There are other things that can be classified as an asset, but this list does not need to be all inclusive for the purpose of this blog.